Green mortgages to sway Millennials towards new homes

A newly-built property’s eco credentials could soon be the ultimate selling point for first time buyers.

Last month, Barclays became the first bank to offer ‘green mortgages’ and now Wales has become the first country to offer larger loans for energy efficient homes; eco-friendly features used to be the preserve of those who could afford to be fussy; however, a new generation of home buyers could find new homes with green credentials is their only affordable option.

Last year, the UK government’s Clean Growth Strategy included plans to work with lenders to develop ‘green mortgages’ which take account of the lower lending risk associated with more energy efficient properties and the reduced outgoings for customers living in more energy efficient homes.

Now Wales has become the first country to adopt pioneering mortgage research into legislation. From this June, all Welsh Help-To-Buy loans will be adjusted according to the energy rating of the home being purchased. This will mean that those purchasing the most energy-efficient homes may be offered a larger loan as a consequence of their smaller anticipated energy bills.

Rebecca Evans, Wales Minister for Housing and Regeneration, said, “We know that energy spending can be a major household outgoing, which is why we want to make energy efficiency part of the consideration when people look to buy a home in Wales. We hope to see lenders follow our lead and making energy efficiency part of the mortgage consideration for all homebuyers in Wales.”

The change has been implemented based on research by the LENDERS partnership which was published in July 2017.

The LENDERS research successfully demonstrated and modelled the link between energy efficiency and household fuel bills, and created a new consumer calculator to showcase the cost benefits of purchasing an energy-efficient property.

The Welsh Government will be the first to put the research into action following the study’s inclusion in the BEIS UK Clean Growth Strategy, marking the first step towards the significant changes that the LENDERS findings will create in the mortgage industry. Loans will be administered by the Development Bank of Wales.

The more accurate view of expenditure will be used to calculate Help-To-Buy top-up loans, which are available almost exclusively on new build properties of up to the value of £300,000.

As new build properties are often classed in the higher rating brackets of energy efficiency, this is likely to open up access to the housing ladder for many. Research from the HBF shows that new build homes save buyers an additional £53 a month on average. With the average second hand buyer estimated to spend up to £45k upgrading their property, new homes also provide their buyers with considerable savings to their short and long term budgets.

Andrew Sutton, Associate Director, BRE Wales, said, “This announcement is a great step for the LENDERS project outcomes and fantastic news for first-time buyers in Wales. The more accurate forecasting provided by the research will help many onto the housing ladder who might have struggled to obtain a mortgage previously, and the research we will do in parallel with the adoption should help other financial institutions better understand the practicality of implementing.

“I am delighted to see the LENDERS project translated from research into reality and I hope to see other mortgage lenders follow suit.”

The affordability of the Government’s Help to Buy scheme combined with the energy efficiency and cheaper running costs of new build homes are already leading to more and more first-time buyers taking the new build route into home ownership, according to the HBF.

Around 16,000 new homes have now been purchased using the Help to Buy scheme, 81% of whom are first time buyers, paying on average £235k for their home outside London. This deposit of under £12,000 for a brand-new home compares favourably with the average first-time buyer needing to find a 16% deposit.

Stewart Baseley executive chairman of the Home Builders Federation said, “New build homes are proving to be the solution for hard-pressed households with an ambition to move into home ownership.

“Over a quarter of a million people are now living in new build homes purchased using the Help to Buy scheme, the vast majority of whom are first time buyers. Help to Buy purchasers are reaping the benefits of smaller deposit requirements, lower monthly mortgage payments and cheaper home running costs provided by today’s more energy efficient new build homes.”“>